Maybe you’ve finally decided to put your independent insurance agency up for sale. Or maybe you don’t foresee selling your insurance agency for another decade. Or maybe you’re somewhere in between. Wherever your agency is in its life cycle, there are certain reports you will need to indicate your agency’s health and attractiveness to potential buyers.
In order to be well-prepared for the merger and acquisition process, it is essential that you have this information well in advance. Otherwise, you may incur costly delays. As Michael Mensch of Agency Brokerage Consultants observed, “Extended delays in a transaction are seldom advantageous to the seller …” He wrote that his firm has seen many transactions fail because the seller could not provide the documents needed to validate the agency’s revenue and earnings. In another case, the final selling price dropped by $1 million due to errors in the seller’s financial statements.
To avoid this fate, your agency should always have these accurate reports ready:
You should have balance sheets, income statements, and cash flow statements for at least the previous three fiscal years. They will show trends In addition to moment-in-time snapshots of your agency’s financial condition. Have you grown more profitable or plateaued? Is the agency generating more cash each month than it was three years ago? Buyers want agencies that produce cash.
Carrier profit-sharing reports
An agency is buying your accounts and carrier relationships. Profit-sharing reports from multiple carriers will give potential buyers an indication of how solid those relationships are and of the quality of your book.
One way for an agency to grow is to purchase an agency that has a large book of niche business. A niche that compliments or balances the cycles of an agency’s existing book may be especially attractive.
Book of business analyses
Even if you’re not ready to sell the agency yet, these reports can give you deep insights into the state of your business. Starting at the client level, your reports should tell you the trends in:
- How much penetration you’re achieving – policy counts per client.
- Account sizes – average policy premium
- Where you’re growing – lists of clients by ZIP code
Other reports you should have include:
List of policies by account
A glance at the list should immediately tell you where upselling opportunities are. Any account with only one or two policies listed is not only an untapped sales opportunity; it is also an opening for a competing agency to seize. Potential buyers will want to see how well-rounded your accounts are.
Lists of accounts by carrier and wholesale broker
Who are you writing business with? Are customer counts growing or shrinking with certain carriers? The answers should prompt more questions about what’s behind the trends. Pricing? Ease of doing business? Technology?
Premium and revenue breakdown by line of business in personal and commercial lines and life/accident and health
Revenue includes commissions, profit-sharing and fee income if state law allows you to charge fees. These reports will tell you how balanced your book is – are you top-heavy in one or two lines? If so, are you comfortable with that? Would a prospective buyer be comfortable with it?
Lists of accounts ranked by premium and revenue size
Which are the 20% of accounts bringing in 80% of your revenue? These are the accounts neither you nor a prospective buyer can afford to lose.
Whether you are trying to better manage your business or getting ready to sell it, the information contained in these reports is vital. Getting them assembled now and rerunning them frequently will help you meet your end goals.